Supply-side problem

Financial Adviser

Ever since the sub-prime crisis, which led to the collapse of the global financial system, there has been a lot of moralising about the mortgage market and its sustainability.

Some critics have said that lenders have been too easy with their lending, which is leading to another housing bubble, which, of course, will be hugely different this time.

Others are putting together a discourse which is simply fuelling an inter-generational conflict which may lead to serious unintended consequences.

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Parallel with this argument was the volatility of the stock market and the underperformance of endowment plans, the main repayment vehicles. So, the regulator did what regulators always do, it had to be seen to be doing something, anything, and borrowers were compensated for their underperforming endowment policies.

But, typically, instead of using the compensation to repay some of the capital on the affected mortgages, the money was given to the borrowers, most of whom irresponsibly used the payment to go on holiday, buy new cars, or redecorate their homes.

One result of all this was the decline of interest-only mortgages, largely based on the flawed logic that most borrowers have not made any provision to repay the capital at the end of the lending period.

This entire debate must be shaped in the wider narrative about the place of home owners in our culture and that it is in bricks and mortar that the wealth of Mr and Mrs Average have their wealth.

It is not beyond the wit of our financial engineers to come up with a workable lending solution for would-be home owners. And if property developers and property economists are right in that the problem is one of supply and not demand, and, further, planning authorities are the culprits, well that too can be solved.

A casual walk up and down any high street will reveal the extent of empty properties in our major cities, just by looking at the empty space in shops and restaurants, especially those owned by the big stores and supermarkets. Making them pay to keep that space unoccupied is a good start.